Rakon cuts 60 NZ jobs in China, India move

Rakon has been building scale at its Indian and Chinese facilities due to larger economies and cheaper labour costs. Photo / Natalie Slade

Rakon, which makes crystal oscillators used in smart phones and navigation systems, will cut up to 60 New Zealand jobs as it shifts more manufacturing to China and India in a bid to cut costs and widen profit margins.

The Auckland-based company expects to lay off up to 14 percent of its local workforce as it shifts crystal manufacturing capacity to Chengdu, China and expands capacity at its facility in India, it said in a statement. The plan is expected to improve margins by $10 million a year.

"Whilst it is very positive that Rakon is increasing market share in our target markets, we have to be realistic and accept it is not possible to sustain labour intensive elements of manufacturing in NZ for such globally competitive markets," chief executive Brent Robinson said.

"We will continue to manufacture temperature compensated crystal oscillators (TXCOs) in NZ using our automated and proprietary manufacturing processes along with other high-performance products," he said.

The job cuts come as government figures today are expected to show labour costs increased 0.5 percent in the September quarter and ahead of data on Thursday forecast to show 0.3 percent jobs growth in the same period. National carrier Air New Zealand today said it was laying off 70 cabin crew after ditching its London-Hong Kong route.

Rakon's Robinson said it has been building scale at the Indian and Chinese facilities due to larger economies and cheaper labour costs.

"The move also allows us to capitalise on significant global growth in demand for smart wireless devices," he said. "Our teams in China and NZ are also working collaboratively on a number of initiatives to reduce cost and improve productivity to further boost returns from this business."

The increased capacity in China will help the company build its relationship with Huawei Technologies, having recently signed a five-year US$56 million contract to quadruple sales to the Chinese telecommunications firm.

In August, Rakon said 2013 earnings before interest, tax, depreciation and amortisation are expected to be $14 million to $16 million in the year ending March 31, 2013, an improvement on ebitda of $13.1 million a year earlier, which was about half the 2011 result.

Rakon will keep its head office and most of its research and development in New Zealand.

The shares were unchanged at 41 cents yesterday and have shed 8.9 percent. The stock is rated an average 'outperform', based on four analyst recommendations compiled by Reuters, with a median target price of 60 cents.